The first problem facing Mark Duffy in his efforts to gatecrash the €1.62 billion takeover of PTSB by Austrian banking group Bawag would appear to be money.
Axis Capital, the company he has said is considering a late €1.74 billion counter bid for the State-owned bank, has €100 to its name, according to its most-recently filed accounts.
The second problem facing the former chief executive of Bank of Scotland Ireland (BOSI) – once dubbed a “suitcase banker” by a rival – is the credibility of the offer. Duffy has been busy since leaving BOSI in 2009 and has tried his hand at everything from buying distressed assets to online non-bank finance, data analytics and hybrid home finance. According to the Axis website, Africa has been a particular focus. He has not bought a bank.
This is not to say that Duffy and his fellow director the German corporate lawyer Lutz Hartmann will not be able to raise the finance. They already had a bit part in the PTSB saga, brokering talks between New York private equity firm Centerbridge, the Department of Finance and PTSB last year.
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“Axis will now engage with a number of potential funding and investment partners with a view to raising the necessary financing that would support the announcement of a firm intention to make an offer for PTSB,” it said last week.
Getting the bidding process reopened is his third problem. Under the terms of the deal agreed with Bawag, the board of PTSB has the right to accept a “superior proposal” which must be at more than €3.1377 per share. Bawag, which has bid €2.97, can increase its offer and if not, it will be able to recoup its costs.
Duffy has pitched his bid at €3.20, well above this threshold, but he has his work cut out to turn it into a “superior proposal” as in theory this provision of the PTSB agreement with Bawag expired after shareholders voted on the offer on July 30th and the sale was approved by whopping 91.28 per cent. In reality the board of PTSB would find it hard to consider a fully funded offer given their wider obligations to shareholders.
Given the mountain he must thus climb, Duffy’s bid is best seen in the context of an expected challenge to the sale, which must be approved by the High Court on October 27th.
Court approval is required because the takeover is being done via a scheme of arrangement, often used in friendly takeovers where the majority shareholder is on board. One of the attractions of a scheme of arrangement is that it makes it hard for awkward small shareholders to hold out for more money.
[ The Irish Times view on the PTSB sale: stick with the planOpens in new window ]
A scheme of arrangement requires 75 per cent of the votes cast at the meeting to approve the transaction to be in favour of the deal, as happened in July.
The challenge will most likely argue that the shareholders should have been split into two classes: the Government, which owns 57 per cent, and the rest. If there are more than one class of shareholders then 75 per cent approval by every class is required.
The scheme could well have failed if the vote had been done on this basis. The small – or non-Government shareholders – own almost 43 per cent of the bank and were split 64 per cent to 36 per cent in favour, but crucially they did not pass the deal by the required 75 per cent.
The most likely candidate to challenge the scheme is Piotr Skoczylas’s Scotchstone Capital, which opposed the scheme of arrangement from the get-go. He has already challenged the class structure and was basically told by the court to come back and argue his case if the deal went through.
The challenge – if it materialises – is not without merit. Among the usual grounds for splitting the shareholders into classes is that the classes do not share the same interest and objectives.
That is a reasonable assertion in the case of PTSB. The small shareholders just want as much money as possible but the State has other fish to fry.
It wants out of the banking sector, in which it has been embroiled since the crash, and faces a conflict of interest given its role – via the Central Bank – as regulator of the banking sector and also ultimately the lender of last resort.
It also wants to make sure – as far as possible – that the buyer of PTSB is both capable and committed to promoting competition in Irish banking. And finally, there is an industrial relations headache and other negative fallout should the buyer take a chainsaw to staff numbers.
All that said, the courts tend to want to see some sort of legal or technical difference between shareholders in order to approve voting by class.
It is an open question as to what impact the existence of a higher offer from Duffy might have on the process. But one way or another the former suitcase banker has a dog in the fight.
